Industry roundtable: The forecast is for strong wind

ROUNDTABLE | Wind energy is an abundant resource in Australia but expansion in projects has been limited over recent years. As costs fall and the air is slowly cleared on policy, the wind sector is set for strong growth. EcoGeneration asked four industry experts about their projections and concerns as the 2020 renewable energy target comes across the horizon.

How do you think the next three years will play out as we reach toward the Renewable Energy Target?

John Titchen, managing director Goldwind Australia (pictured): Activity in the Australian market has stepped up significantly in the last year with all major parties liable to the Large-scale Renewable Energy Target (LRET) taking action to meet their Large-scale Generation Certificate (LGC) liabilities. In addition, several projects including White Rock Wind Farm have been committed based on part or full merchant revenues. The energy and LGC prices have strengthened, providing a clear ongoing signal for renewable energy investment.

There is strong competition in the market, which ensures that a competitive sourcing of the LRET target is achieved. The LRET includes a mechanism by which shortfalls in meeting liabilities can be met in the following three years. It is possible that the 2020 target will be met in this way. This is likely to result in sustained high LGC prices up to and beyond 2020. In this market, early investment is being rewarded.

A portion of the LGC liabilities that are associated with commercial and industrial customers are less easy to contract due to typically short-term power supply contracts. Solutions to this challenge include merchant investment, direct contracting with larger commercial and industrial customers or the adoption of state schemes that tender LGC power purchase agreements (PPAs) to match up with the commercial and industrial liabilities, ensuring that the commercial and industrial LGC demand is satisfied.

Rachel Watson, general manager of new business PacificHydro: Bipartisan support for the renewable energy target has provided confidence that it is here to stay. We’re seeing signs that the market is now getting organised to meet it. On the supply side, long-planned developments are being built, along with new projects going through the development process. On the demand side we are seeing the return of PPAs – and not just from traditional off-takers.

We’re on track for a rapid increase in construction work as we reinvigorate our development pipeline; and utility-scale solar is going to play a much larger role due to the ever-falling cost of panels.

Cameron Reid, manager carbon and renewable energy policy AGL: With the tightening of the supply-demand balance, state encouragement for RET eligible projects and major gentailers announcing projects there appears to be the necessary momentum to meet the RET. There may be some timing issues as the LGC market continues to be around (it might tip over) penalty in the short to medium term. Assuming no move to try to manage this transitory pricing things should settle as projects begin to come online. The bigger challenge will be ensuring some degree of policy certainty beyond 2020 to provide the longer term sustainability required for industry.

Peter Cowling, general manager renewable sales Asia-Pacific GE: We expect to see an unprecedented volume of utility-scale wind and solar farms reach financial close in the next three years in Australia. There are almost as many gigawatts of projects under advanced procurement discussions as there are installed. The projects are there to meet the RET and the capital is available. The key challenge will be finding commercial models to lock in the investment required, including alternatives to traditional long-term power purchase agreements.

What will be the major challenges or bottlenecks, including finding skilled staff in construction and production?

Titchen, Goldwind: Goldwind has considerable manufacturing capacity and does not see an impediment in meeting the target from an equipment supply perspective. In recent years the industry in Australia has been poised to construct renewable energy projects – there is very significant capacity in the industry and new players are entering into the wind farm construction field. For example, Fulton Hogan is the civil and electrical construction contractor for White Rock Wind Farm – their substantial experience in similar infrastructure projects translates directly into wind farm projects.

Watson, PacificHydro (pictured): The delay in developing some projects means that some older permits were issued for machines which no longer provide the optimum solution for these sites. Going through the development approvals process to enable the use of more efficient machines may cause a bottleneck in bringing these projects to financial close.

Another challenge, which is also an opportunity, is the introduction of new suppliers into the market in order to meet demand. New equipment suppliers need to be supported as they learn about Australian requirements and build their own reputations in the local market.

Reid, AGL: The major challenges will differ among market participants. You would expect the larger players to get their projects away assuming the financing structure can diversify the risk, such as that achieved through AGL Energy’s Powering Australian Renewables Fund. There may be some labour and equipment bottlenecks impacting construction price but these should be manageable. One area to watch will be financing for projects that will supply outside the credit rated retailer liability. Without the credit rated entity on the demand side, financing costs and risk allocation might prove a challenge for potential merchant programs.

Cowling, GE: There will likely be some short-term bottlenecks for some specialist equipment such as very high lift cranes or specialist transport rigs, but given project timelines the global market is more than capable of responding to these needs. Australia is recognised globally as having a strong future for renewables, so we will no doubt see interest from suppliers at all levels of industry to respond to the opportunity. Compared to other major infrastructure projects, building out the RET and beyond is relatively straightforward. All the required skills are available and additional workforce is easily upskilled from allied industries.

The electricity system transition seems to be gaining momentum but what is the role of state and local governments in assisting that transition?

Titchen, Goldwind: The federal and state governments need to be in alignment on the electricity market transition. There is a need for planning of the development of the market arrangements as the future power system will have quite different features from the historical system.

It is in the community’s interest that the transition is managed in an efficient and effective manner. A combination of regulatory and market instruments is necessary. A national approach is needed with technical, regulatory and market arrangements that provide flexibility for the emergence of the optimal energy system.

Watson, PacificHydro: State and local government play an integral role in the success of this transition through policy settings and targets; and can further assist by ensuring processes are efficient, especially at a departmental level. Development requires liaison with multiple agencies, so it’s vital that these interfaces work well.

State policy settings and renewable energy targets create favourable investment conditions and also help make the case for consistent national policy, which is an essential part of making sure the transition is orderly.

As well as planning approvals, local governments can also play a major role in connecting developers with skills, capabilities and suppliers in their municipalities. This stimulates regional economies and helps projects integrate into local communities.

Support at all these levels provides many of the necessary settings to transition the electricity system from black to green.

Reid, AGL: Local governments have an important role to play within the planning system but also as large consumers driving demand through renewable energy purchasing policies.

State governments are critical to the transition process. Beyond their renewable policies state governments can provide certainty in the market for a range of areas in the energy industry (physical, financial and regulatory). This could be through the role of regulator or via the COAG Energy Council. While bipartisanship at a federal level is desirable, when it comes to long-term certainty agreement or alignment between states and the federal government is critically important. Alignment on rules for the closure of coal plants and dispatchability of renewables beyond the RET are areas where states can play a leadership role.

Cowling, GE (pictured): State governments as the key stakeholders in the NEM and South-West Interconnected System are critical to ensuring that market rules keep up with the changing characteristics of the system – we will have to operate the grid and the market differently as we transition to higher levels of non-synchronous intermittent generation. Local governments also have an important role to facilitate timely and cost-effective planning approvals for large-scale renewable projects and their support infrastructure. Both levels of government will play an important role in pre-empting and mitigating the broader socioeconomic challenges as energy sources and associated employment patterns change with the transition.

What energy market changes should take highest priority?

Titchen, Goldwind: It is important to develop the market in advance of technical and commercial challenges that are emerging. Such as, firstly, a harmonised renewable energy target to provide a foundation for growth.

For renewable energy to be delivered at least cost, the duration of the renewable energy target should be extended to 2040, enabling the investment returns to be recovered at a lower price over a longer period commensurate with an infrastructure investment.

The establishment of stronger electrical connections between the states is important to ensure system security is maintained and energy resources are optimally deployed. For example, a second Tasmanian connection would provide additional peaking capacity into Victoria as brown coal generators close, provide a backup (redundancy) for Basslink, enhancing system security, and would facilitate additional renewable energy investment.

As large, end of life coal generators are withdrawn from the market, it is important to maintain sufficient dispatchable capacity to meet electricity demand at all times. A mechanism is required that will ensure sufficient dispatchable capacity is available to meet demand.

And point four, address gaps in the design of the National Electricity Market where needed, and introduce an inertia market.

The National Electricity Market has sub-markets for frequency control services but not for inertia. The addition of an ancillary service market for inertia in the National Electricity Market rules would ensure power system frequency control is well managed as greater levels of renewable energy are installed.

Watson, PacificHydro: Ensuring a smooth transition from a carbon-intensive energy sector to one including more renewables as we achieve the RET is going to be key. Central planning and coordination with a clear commitment to long-term goals is vital to ensuring the right outcome.

Reid, AGL (pictured): Developing a plan for the transition to a decarbonised energy sector is critical.

Such a plan needs to consider the balance required in addressing the trilemma of carbon constraint, system reliability and affordability.

AGL believes this needs to be underpinned by a framework for orderly transition that provides a mechanism for the timely exit of existing thermal generation (such as, age), addressing volatility as a means of financing firm capacity with a stapled “firm capacity right” for new renewable projects, and emissions intensity trading scheme and implementing a nationally consistent and cost-effective policy for incentivising new renewable energy beyond 2020.

Cowling, GE: The most urgent priority is to ensure the frequency control ancillary services market is working effectively.

An increase in wind farm construction is a huge opportunity for investment in regional Australia, so what’s the most exciting community engagement or benefit sharing initiative that your company is working on?

Titchen, Goldwind: Goldwind is currently constructing the White Rock Wind Farm in the Northern Tablelands/New England region of NSW, and initiatives in the project include:

Firstly, the Mobile Black Spot Initiative, where White Rock Wind Farm teamed up with Vodafone and federal, state and local governments to install Vodafone equipment on a wind monitoring mast, significantly boosting mobile phone coverage to the surrounding area. The initiative delivered local benefits to the community prior to construction commencing.

Secondly, the Local Business Participation Program has provided opportunities for local companies to offer their services to the project. The ICN Gateway [business network] was utilised and a workshop was held between the project delivery team and interested parties. Significant local business involvement in the project has resulted.

Sponsorship of local events has also enabled White Rock Wind Farm to participate in community activities. And lastly, we established a shopfront in Glen Innes, the closest township, which is staffed by a local community member and ensures that White Rock Wind Farm has a consistent presence during the construction phase and into operation. This facility allows members of the community and passing visitors to discover more about the project.

Watson, PacificHydro: PacificHydro established the first wind farm community fund in 2005. Since then, our Sustainable Communities Fund has provided more than $2 million to over 600 local groups and projects. We are working on expanding and improving the fund in 2017, further simplifying the application process and involving local communities more closely in decision-making.

We ran a very successful wind farm open day in November 2016 at our Portland wind farm in partnership with the local community garden. This showcased and supported some of the fantastic work of local groups, and provided hands-on renewable energy demonstrations to the public. Along with our frequent face-to-face neighbour and community contact, the day provided a further opportunity to meet with and further understand the needs and priorities of our host communities, and for them to learn more about what we do.

Reid, AGL: AGL is developing a 200MW windfarm at Silverton in NSW and a 400MW windfarm at Cooper’s Gap in Queensland. At both of these projects AGL is seeking to ensure neighbours to the project who are not hosting turbines still benefit directly thorough the provision of solar PV systems.

Around our coal plants in NSW and Victoria, our engagement is centred on working with communities in the Hunter and Latrobe Valleys. It focuses on the community challenges and social impacts of a transition away from coal generation and towards a decarbonised energy system. Working with our people, community and government leaders AGL is seeking to foster new industry models, supported by transparent engagement and robust discussion with business and government, which can best support the communities within which we operate over the long term.

Cowling, GE: The Ararat Wind Farm, which will be Australia’s third-largest wind farm, is projected to inject almost $8 million into the local economy. We have been privileged to work with the landowners, neighbours and broader community to foster an open dialogue to maximise positive local impact from the construction process.

John Titchen is managing director of Goldwind Australia. John has more than 20 years’ experience in the electricity industry in Australia with Hydro Tasmania, Roaring 40s and the Electricity Commission of NSW. John holds a BSc in Engineering and an Australian Company Directors Diploma.

Rachel Watson is general manager of new business at Pacific Hydro, where she is responsible for a range of corporate functions including energy markets, external affairs and new business. She started at Pacific Hydro in 2006 as a corporate lawyer after holding legal roles at Orica and Mitsubishi Heavy Industries. Rachel is also the incoming chair of the Clean Energy Council.

Cameron Reid is manager carbon and renewable energy policy at AGL, where he is responsible for influencing, understanding and coordinating AGL’s response (short and long term) to climate change, carbon policy and renewable energy policy. He was previously AGLs manager of customer hardship and social policy.

Peter Cowling is general manager renewable sales Asia-Pacific at GE Energy. Peter has been with GE since 2010 and in the renewable energy industry for 15 years. He holds law and history degrees from Melbourne’s Monash University. Peter is a board member for the Clean Energy Council.